Wealth Tax Mobility and Tax Coordination

67 Pages Posted: 21 Aug 2020 Last revised: 4 Mar 2022

See all articles by David R. Agrawal

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration

Dirk Foremny

University of Barcelona - Institut d'Economia de Barcelona (IEB) ; CESifo (Center for Economic Studies and Ifo Institute)

Clara Martínez-Toledano

Columbia University - Columbia Business School, Economics; World Inequality Lab; Imperial College London - Accounting, Finance, and Macroeconomics

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Date Written: August 16, 2020

Abstract

This paper studies the effects of decentralized wealth taxation on mobility and the effectiveness of tax coordination at mitigating potential inefficiencies and inequalities from wealth tax competition. Using linked administrative wealth and income tax records, we exploit the decentralization of the Spanish wealth tax, after which all regions except Madrid levied positive tax rates. We find that the mobility responses to wealth taxes are within the range of previous mobility estimates for income taxes. These mobility responses generate negative direct and cross-base fiscal externalities, with the losses to personal income tax revenues being six times larger than the direct losses to wealth tax revenues. Mobility also doubles the rate of growth of reported wealth among top wealth holders in the zero-tax jurisdiction. Finally, we show how the number of regions benefiting from tax harmonization depends critically on the cross-base effects of income taxes, but that a minimum tax rate is likely to receive the support of more regions than harmonization.

Keywords: Fiscal Decentralization, Fiscal Federalism, State and Local Taxation, Wealth Taxes, Mobility, Inequality, Tax Havens, Evasion

JEL Classification: E21, H24, H31, H73, J61, R23

Suggested Citation

Agrawal, David R. and Foremny, Dirk and Martínez-Toledano, Clara, Wealth Tax Mobility and Tax Coordination (August 16, 2020). Available at SSRN: https://ssrn.com/abstract=3676031 or http://dx.doi.org/10.2139/ssrn.3676031

David R. Agrawal (Contact Author)

University of Kentucky - James W. Martin School of Public Policy and Administration ( email )

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HOME PAGE: http://www.uky.edu/~drag222/

Dirk Foremny

University of Barcelona - Institut d'Economia de Barcelona (IEB) ( email )

c/ John M. Keynes, 1-11
Barcelona, 08034
Spain

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany

Clara Martínez-Toledano

Columbia University - Columbia Business School, Economics ( email )

420 West 118th Street
New York, NY 10027
United States

World Inequality Lab ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

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